Why Is MRC (MRC) Down 55.4% Since Last Earnings Report?

It has been about a month since the last earnings report for MRC Global (MRC). Shares have lost about 55.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is MRC due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

MRC Global Q4 Earnings and Revenues Miss Estimates

MRC Global reported weaker-than-expected results for the fourth quarter of 2019. Reduced customer spending levels adversely impacted results.

It recorded an adjusted loss per share of 35 cents per share or loss of 11 cents per share excluding the impact of 26 cents of one-time items. The result lagged the Zacks Consensus Estimate of earnings per share of 7 cents. Notably, its earnings per share were 17 cents a year ago.

For 2019, the company’s adjusted earnings per share were 15 cents, lagging the Zacks Consensus Estimate of 61 cents. On a year-over-year basis, the bottom line declined 86%.

Segmental Revenues

In the reported quarter, MRC Global’s revenues totaled $766 million, reflecting a year-over-year decline of 24.1%. Revenues were adversely impacted by weak segmental results.

Further, the company’s revenues lagged the Zacks Consensus Estimate of $853.2 million by 10.2%.

Based on MRC Global’s product line, revenues from carbon steel pipe, fittings and flanges declined 38% year over year to $201 million, while that from valves, automation, measurement and instrumentation decreased 24.1% to $309 million, and that from gas products moved down 7.4% to $126 million. Sales for general oilfield products fell 8.3% to $88 million, while that for stainless steel alloy pipe and fittings declined 8.7% to $42 million.

Revenues from the Upstream sector were approximately $224 million, declining 33.9% from the year-ago quarter. Midstream sales totaled $298 million, down 20.1% from the year-ago quarter, while Downstream sales totaled $244 million, declining 17.8% year over year.

The company has three reportable segments — the U.S., Canada and International. Information on these segments for the quarter under review is given below:

Sales generated from the U.S. segment totaled $608 million, declining 21.9% year over year. The results were adversely impacted by weakness in upstream, midstream and downstream businesses.

Revenues from the Canada segment moved down 45.6% year over year to $43 million due to weakness in upstream, midstream and downstream businesses.

Sales from the International segment declined 24.3% to $115 million. The results were adversely impacted by weakness in upstream and downstream, partially offset by strength in the midstream business.

For 2019, the company’s revenues totaled $3.66 billion, decreasing 12.2% year over year. Also, the top line lagged the Zacks Consensus Estimate of $3.75 billion.

Margin Profile

In the quarter under review, MRC Global’s cost of sales declined 24.2% year over year to $635 million. Adjusted gross profit in the quarter moved down 27.7% year over year to $146 million. Margin slipped 90 basis points (bps) to 19.1%. Selling, general and administrative (SG&A) expenses were down 4.7% year over year to $141 million.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) declined 63.5% year over year to $23 million while adjusted EBITDA margin was down 320 bps at 3%. Interest expenses were down 10% year over year at $9 million.

Balance Sheet and Cash Flow

Exiting fourth-quarter 2019, MRC Global had a cash balance of $32 million, up 28% from $25 million at the end of the last reported quarter. Long-term debt balance declined 12.2% sequentially to $547 million.

In 2019, the company generated net cash of $242 million from operating activities against $11 million used in the previous year. Capital spending totaled $18 million versus $20 million in 2018.

During 2019, the company used $75 million for repurchasing shares and $24 million for paying out dividends.

Outlook

For the quarters ahead, MRC Global is concerned about weak market conditions. However, it believes that its focus on cost reduction, lowering debts and generation of free cash flow will be advantageous.

For 2020, the company predicts revenues of $3,200-$3,700 million. As noted, revenues of the U.S. and Canada segments are expected to decline in mid-single digits, and that for International will likely be down in low-single digits. Also, sales will likely decline in high-single digits for the Upstream sector, and in mid-single digits for Midstream and Downstream sectors.

Revenues for the first quarter of 2020 are predicted to be flat sequentially.

Adjusted gross profit margin will likely be 19.6-19.8%. Selling, general and administrative expenses will likely be $510-$530 million, and adjusted EBITDA will probably be $160-$200 million. Tax rate will likely be 26-28%.

Earnings per share will probably be 19-56 cents for the year.

Cash flow from operations will likely be $110-$160 million. Capital spending is expected to be $15-$20 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -134.29% due to these changes.

VGM Scores

Currently, MRC has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise MRC has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.